Transfer Pricing: an interesting case of method adjustment used in the analysis

In its judgment No. 36275 of 13 December 2022, the Court of Cassation ruled in favour of the taxpayer in a Transfer Pricing case, in which the Tax Authority challenged the use of the "cost plus method" ("CPM"), instead of the "comparable uncontrolled price" ("CUP").

The case

In the case at issue, the Italian Tax Authority notified to a company an assessment notice for the recovery of a higher taxable income, claiming the improper application of transfer pricing principles to transactions with its direct subsidiaries in Austria, France, and Switzerland.

Specifically, the Tax Administration replaced the prices charged by the company in the above transactions with the higher prices resulting from the application of the CUP model. That is because, according to the authority, these would be the prices charged in a transaction between independent parties.

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